Effects of Mandatory Audit Firm Rotation Upon Quality of Audit: The Perception of Audit Firm in Bahrain

Mandatory audit firm rotation sets a limit on the number of years a public accounting firm may audit a company’s financial statements. After a predetermined period, an accounting firm is no longer eligible to serve as the company’s auditor for a set time interval and a rotation of firms is required. The objectives of this study are: (1) to explore current audit appointment practices by audit firms in Bahrain; (2) to look into the opinions of audit firms in Bahrain on potential effects provided by implementing mandatory audit firm rotation (audit quality); and (3) to investigate audit firms’ views in implementing mandatory audit firm rotation in Bahrain. To achieve these objectives, a questionnaire was developed and distributed to respondents that consist of all auditors working in audit firms in Bahrain. The findings indicated that there is a significant relationship between mandatory audit firm rotation and quality of audit. The study also indicated that longer partner tenure makes the auditor’s performance lack the quality in the auditing process. The average mean for all questions of the hypothesis together is 2.73 with average standard deviation of 0.94 which is less than half of the mean. This means that there is no dispersion among respondents about the questions of the hypothesis. Also, the analysis shows that the t-value is 29.922, which is greater than the table critical value of t (1.66), and the p-value obtained is 0.000 which is less than the value of significance at p < 0.05. These results confirm statistically that there is a significant relationship, so the null hypothesis is rejected and the alternative hypothesis is accepted. this study focused on the impact of MAR on audit quality in Bahrain, further research may be directed towards examining the impact of MAR upon auditor independence and the cost of audit rotation. However, variables other than those included in the questionnaire of the study may affect the MAR.